By Cyndy Batchelor & Sarah Chisholm
Financial Advisors, O’Farrell Financial Services
Q: What is the difference between Term Life Insurance and Whole Life Insurance?
A: Term Life Insurance is insurance you take out for a specific term and cost. Once the term expires, the cost of term insurance increases or you can choose to let the policy expire. Whole Life or permanent insurance does not expire if you continue to make your premium payments. With Whole Life insurance, some of your premium goes towards purchasing an investment component held within your policy. Depending on the type of Whole Life insurance you purchase, this can increase the value of your death benefit.
Q: In what instance would Term Life Insurance be a good choice for me?
A: Term insurance can be a great value for your money. Scenarios in which you would want term insurance would be for mortgage coverage, child support, or income replacement. Term Insurance helps to pay out your liabilities and debts should the unthinkable happen. Term products available include Term10, Term20, Term30, and Termto65. It is important to review these options with your Insurance Advisor who will complete a Needs Analysis to determine an appropriate amount of coverage and length of term.
Q: I have heard about Whole Life Insurance helping with tax savings. How could this help me?
A: In Canada insurance proceeds flow through to your beneficiaries’ tax free. Outside of spousal rollovers, the only other assets that pass tax free to your beneficiaries are your primary residence and your TFSA account. Like a TFSA, the cash value in a Whole Life policy grows tax free, so you can use insurance premiums to shift investable assets from a taxable account into life insurance.
Is your TFSA is maxed out, do you have sizable RRSPs, a pension and outside Non-Registered Investments? When you and your spouse begin collecting CPP and OAS you will likely face an OAS claw back due to your income levels. A Whole Life Estate strategy can help to preserve your assets in a tax-sheltered investment, allowing you to smooth your income, save your OAS, lower your annual taxes and at the last death, lower your estate taxes. Your Advisor can work with you to review your Financial Plan and determine if Whole Life Insurance is a fit for you.
